The Customer Effect

Why Varo Money wants to become a full-service bank

  • Mobile banking startup Varo money recently applied for a banking license to broaden the range of services it offers.
  • The move could help Varo generate additional revenue streams from deposits and lending products.
close

Email a Friend

Why Varo Money wants to become a full-service bank

Mobile banking startup Varo Money is getting ready to become a full-service bank, having applied for a national license late last month. It’s the second financial services startup after SoFi that’s taking on the banks by aiming to become one.

Varo Money, which launched in the Apple App Store in July, offers customers bank-type products through partnerships. The Varo deposit account is possible through a partnership with The Bancorp. The app has a dashboard where customers can monitor non-Varo accounts. Val, a Kasisto-powered bot, provides financial advice.

Varo pitches itself to millennials as a low-fee banking option. It doesn’t charge overdraft fees, card replacement fees or foreign transaction fees, and customers can access 55,000 Allpoint ATMs with no fees.

“Seventy-five percent of millennials are hands-off with their finances and would rather be doing almost anything else than creating a budget, categorizing transactions, or analyzing their spend,” said Varo CEO Colin Walsh. “We want to democratize access to financial guidance.”

Getting a full-service banking license would let Varo offer its own deposit products without the need to partner with other institutions and offer other products including credit cards, home equity loans, mortgages, certificates of deposit and IRAs, he said. Varo has no plans to open brick-and-mortar branches.

Becoming a bank adds additional revenue streams for Varo through deposits and lending products, said Aite Group Senior Analyst Kevin Morrison. The lack of physical branches also lets it save on overhead costs, he added.

“The only way to make this work is if they’re able to lend,” he said. “You have to take deposits to be able to lend, and you have to be able to offer competitive rates on those deposits.” Varo could also generate revenue through interchange fees merchants pay.

Down the road, it plans to add peer-to-peer payments, possibly through a partner.

Our plan is to create a digitalized version of what banks used to be: integrated, personalized, low-cost financial solutions built around a bank that has your back,” said Walsh.

Like SoFi, Varo also wants to broaden the services it offers. Varo is likely aiming for people of varied incomes, while SoFi is known to target higher-income customers, said Morrison.

Ryan Gilbert, partner at Propel Venture Partners, said Varo’s move makes sense given that it’s well-funded (it raised $27 million in Series A funding led by private equity firm Warburg Pincus) and has an experienced team led by Walsh, a seasoned banker with experience at Lloyds and American Express. Varo’s move doesn’t necessarily mean other fintech companies will follow suit, he added.

“Applying for a bank license is a Herculean task, unless you’re exceptionally well-funded,” he said. “SoFi and Varo are going to be able to get there along with only 10 eligible companies.”

 

 

0 comments on “Why Varo Money wants to become a full-service bank”

Library, Modern Marketing, The Customer Effect

Tearsheet’s 2021 guide for marketers: Gens under the lens

  • We closed off last year with a thorough breakdown of the financial consumer profile of each of the generations.
  • The compiled guide for marketers is now available for download.
Tearsheet Editors | January 24, 2022
The Customer Effect

Who led banking app downloads in 2021?

  • Challenger bank Chime led the banking app download charts, ahead of established brick-and-mortar banks like Chase and Bank of America.
  • The top three crypto apps totaled 145 million downloads in 2021, up significantly from 18 million in 2020.
Subboh Jaffery | January 14, 2022
Sponsored, The Customer Effect

The increasing role of personalization in retail wealth management

  • In a recent survey by ThoughtLab and Publicis Sapient, 49% of investors put simple, intuitive digital experience as top priority – but only 18% are very satisfied with their current advisor’s digital experience.
  • With 44% of respondents planning to move their funds over the next 2 years, better personalization has never been more important.
Publicis Sapient | January 06, 2022
The Customer Effect

With only 5% of Americans confident in their financial health, what are their generational resolutions for 2022?

  • A survey found only 5% of Americans see their financial health as ‘rock-solid’. One in four describe it as out-of-shape, while almost half call it a work in progress.
  • With 59% wanting to focus on increasing their savings, it is the most popular financial resolution among Americans for 2022.
Subboh Jaffery | December 29, 2021
Modern Marketing, The Customer Effect

Gens under the lens: The Gen Z consumer

  • Generation Z, also known as Zoomers, represents individuals born between 1997 and 2012, following Millennials.
  • They grew up with the internet, computers and smartphones, are tech-savvy and all about digital finance.
Iulia Ciutina | December 16, 2021
More Articles